23 October 2010

According to media reports, Indonesia's foreign minister Mr Marty Natalegawa said on 22 October 2010 that controlling the land fires in Sumatra (one of the main islands of Indonesia) was a priority for Indonesia.

However, fighting the haze caused by the land fires could not be done by Indonesia alone.

Being a transnational problem, it required cooperation from other countries in the region.

According to media reports, China cut the export quota of rare earth minerals — a group of 17 elements used in the manufacture of a range of products such as LCD panels and hybrid vehicles — in the second half of this year by 72 per cent and plans to cut supplies by a further 30 per cent in 2011.

Separately, Japan and the US claimed that China slowed down customs clearance of exports of rare earth minerals to their countries recently to show its displeasure with them.

The Japanese believed that China was retaliating against its detention of the captain of a Chinese trawler involved in a collision with two Japanese coastguard vessels off the disputed islands of Senkaku (or Diaoyu, as they are called in China).

The US believed that China was retaliating against its decision to investigate whether China was violating international trade rules with policies to subsidise its clean energy industries.

Although China has only one-third of the global reserves of rare earth minerals, it accounts for 90 per cent of the global supply. Some believe that the Western countries are to blame for this situation — they had shut down their rare earth mineral mines when they were unable to compete with the lower cost rare earth minerals from China.

China believes it has the right to decide for itself how much rare earth minerals it wishes to produce and to export, but not everyone agrees with this view.

The U.S., European Union and Mexico have complained to the World Trade Organisation last year that China's export restrictions on minerals such as bauxite and magnesium discriminated against foreign manufacturers that use the inputs and gave an unfair advantage to Chinese producers. The WTO will not publish a ruling until next April instead of this year.

These events show that just-in-time manufacturing with its lean inventories is a risky practice. It is also risky to shut down mines or any other production facility within a country's borders simply because it is not competitive, unless there are reliable alternative sources.

These events have also prompted several countries to intensify their efforts to recover rare earth minerals through recycling.

The shortage of rare earth minerals is painful to a country's industries, but it is not the end of the world.

The loss of supply of food will be.

Can Singapore afford to rely on other countries to supply it with food, or with enough food? Even if Singapore companies own, or have contracted to buy produce from, the relevant farms located in other countries, the governments of those countries may impose export quotas or block or slow down exports of vital food when it comes to a crunch. Or organisations in those countries may block the export of, or seize, the food that they desperately need for their people.

Diversifying Singapore's sources of food will help, but may be prove to be of limited usefulness if there is a global shortage of a certain type of staple food or a certain group of staple food.

Singapore should re-think its strategic priorities and set aside land and other resources for farming. It is not high tech, not high value-add, not glamorous, but it is vital for the country's survival.

18 October 2010

In the recently concluded Commonwealth Games in New Delhi, the Singapore men's 4x200m freestyle relay team was disqualified from the final because it had missed the deadline to submit its entry for the final.

The team set out for the competition venue 15 minutes before the deadline, on a journey that usually took 20 to 30 minutes, according to team manager and head coach Mr Ang Peng Siong. The team arrived 45 minutes after the deadline because of traffic delays.

Mr Ang made a mistake.

He admitted his mistake, and apologised. He did not offer any excuse. He did not deflect blame. He did not dismiss or trivialise the impact of his actions.

His honesty and sincerity are admirable qualities. We can learn from him.

It was also reported that the head coaches of the other teams participating in that final signed the appeal submitted by the Singapore team.

The sportsmanship shown by the other head coaches is refreshing, notwithstanding that the Singapore team might not have won a medal, having qualified for the final with the seventh fastest time.

16 October 2010

Minister for Trade and Industry Lim Hng Kiang urged university students to guard against popular fallacies in economic policies.

Economics could be a powerful tool to clarify complex issues in public policy.

Singapore, more than most other countries, placed a high premium on applying rational thinking and empirical evidence in analysing and designing policies. It could not base its decisions on instinct and gut feel. Intellectual honesty and rigorous analysis were needed to chart an optimal path through the challenges. Policies must be based on clear objectives and sound evidence.

06 October 2010

The US should tax the wealthy more, according to Warren Buffett, the world's third richest man.

Existing tax revenues are insufficient to fund the programmes that Americans believe are right to have in the country. More tax revenues are needed.

Furthermore, the US faces a soaring national debt.

Additional tax revenues have to come from somewhere. If the government is not getting them from wealthy and ultra wealthy guys such as Mr Buffett, why should it get them from the guy who serves lunch to them? It's not fair.

04 October 2010

Some economists believe that fiscal stimulus as a panacea for recession is not effective in the best of circumstances, and is wrong for what ails the West now.

They reason that most of the stimulus money injected by Western governments ends up benefiting the emerging economies because the Western economies are not competitive.

In the global marketplace for goods and services, however, competitiveness is a function of both the domestic price of the good or service and foreign exchange rates.

Thus, many people in the US are convinced that the competitiveness of American goods and services vis-à-vis Chinese goods and services is undermined because the Chinese yuan is undervalued by up to 40 per cent against the US dollar.

Similarly, Japanese exporters face tremendous difficulties as the Japanese yen appreciates against almost all other currencies (including the US dollar). They wish that their government will bring about a cheaper yen to help them.

With China being the world's largest exporter and the second largest economy, an undervalued yuan has adverse implications for the health of the economies of its trading partners and their (the trading partners') ability to enough create jobs for their people.

When a currency is undervalued, the impact on its trading partners is a function of the extent to which the currency is undervalued, and the period over which such undervaluation has occurred.

China says that a significant increase in the value of the yuan will result in many Chinese companies filing for bankruptcy and in severe job losses. Interestingly, this is the flip side of the coin of what the US has been saying — that the undervalued yuan is hindering economic recovery and job creation in the US.